Profitable Bowl Championship Series bowls get public aid

By By Craig Harris of the Arizona Republic
Updated: October 2, 2011

Arizona, The Sugar Bowl has accepted annual subsidies of at least $1 million from the state of Louisiana during much of the BCS era, while increasing its reserves to $34.2 million, records obtained by The Arizona Republic show.

Two other Bowl Championship Series games – the Fiesta and Orange bowls – also amassed cash reserves while accepting public subsidies from governments, many of which have recently been forced to make other cuts to their budgets.

The non-profit organizations that operate the three bowls pay no taxes on their revenues, donate a small percentage of their revenue to charitable causes and have significantly raised executive pay in recent years.

The BCS, a system created in the 1998-99 season by universities and athletic conferences, designates by contract which bowls are part of its postseason bowl system. It selects which teams play in those games and a rotating fifth game that determines a national champion.

Of the four bowls now in the BCS – Fiesta, Orange, Rose and Sugar – only the Rose Bowl says it has not received government subsidies.

The bowls defend the subsidies because they classify their events as economic engines that attract tens of thousands of tourists annually.

They and their government sponsors view the subsidies as seed capital to help stage showcase events that guarantee the bowls and their communities continued national status.

The bowls note their games pump hundreds of millions of dollars into their local economies. The Sugar Bowl, for example, said its game and related activities injected $137 million into New Orleans and Louisiana in fiscal 2010.

Louisiana Lt. Gov. Jay Dardenne, whose office has paid out subsidies to the Sugar Bowl since fiscal 2006-07, said the bowl has been a good state investment. But, he added, the bowl no longer is “an appropriate recipient” of funds following media reports in the past year about the Sugar Bowl’s reserves and Chief Executive Paul Hoolahan’s salary of nearly $600,000.

Last week, the Sugar Bowl also admitted making improper campaign contributions to Louisiana’s former governor.

“They have a huge surplus, and they are paying a huge salary to the executive director,” Dardenne said. “It certainly makes you recognize a non-profit entity like that has an upside potential to make money, and it no longer has a need to be subsidized by government entities.”

Those who monitor non-profits question whether the bowls, as money-making enterprises that enjoy tax-exempt status, should receive subsidies.

Sharon Schneider, a philanthropic director at the Connecticut-based Foundation Source, which runs nearly 1,000 foundations, said it is common for non-profits across the country to receive government subsidies. But the money typically is given to organizations that provide indispensible community services: homeless shelters, food banks, job training and the like.

Sugar Bowl aid

The BCS is a partnership among 11 college football conferences, the University of Notre Dame and the four major bowls.

The bowls generate their income from the games, sponsorships and TV contracts. Last year, the combined BCS payout was nearly $182 million, with roughly 80 percent of the money going to the six power conferences that created the BCS.

The Sugar Bowl, according to its annual non-profit statement to the Internal Revenue Service, has taken government assistance since at least 2001-02, when the bowl accepted $1 million and had net assets of $10.7 million. Records show the bowl has since accepted subsidies nearly every year, for a total of nearly $11 million, as its net reserves more than tripled to $34.2 million.

Hotel and motel bed-tax revenues across Louisiana generate the state funding, said Jacques Berry, a spokesman for Dardenne. The money is passed through the Lieutenant Governor’s Office after lawmakers and the governor approve a budget, Berry said.

The funding ultimately landed in the BCS’ hands in 2009-10 as part of a $6 million Sugar Bowl payment to the BCS under its contract.

All subsidies from the state go to the BCS for payouts to universities participating in its bowls, said Sugar Bowl spokesman John Sudsbury.

The Sugar Bowl’s $34.2 million net reserve is the healthiest among BCS members. The bowl turned down nearly $1.4 million from the state in the fiscal year ended June 30, Dardenne said, after publicity regarding the Sugar Bowl CEO’s pay and because Louisiana was “going through serious financial challenges.”

Louisiana began cutting spending in late 2009 because of the recession. Public colleges and health-care services took the most cuts to bridge a $248 million deficit. Budget problems persist, so Louisiana state workers for a second consecutive year will not see a pay raise, and more than 3,000 positions have been cut.

Dardenne said he would work to ensure there is no Sugar Bowl subsidy this fiscal year. He said the bowl should dip into its reserves to help the state or New Orleans host other sporting events that promote economic development.

Sudsbury said the bowl already is doing so – and investing in the community.

“The mission of the Allstate Sugar Bowl is to sponsor and promote amateur sporting events in order to foster revenue and spark economic growth in the city of New Orleans and the state of Louisiana,” Sudsbury said. “The Sugar Bowl Committee recently committed $2 million to go toward a multiyear project to renovate recreation parks around the city.”

Members of the Greater New Orleans Hotel & Lodging Association also contribute to the Sugar Bowl’s bottom line, voluntarily paying it nearly $2.4 million in commissions since the championship system was formed.

Other subsidies

The Fiesta and Orange bowls also receive subsidies:

– Tempe through 2013 will have paid the Fiesta Bowl $6.45 million to ensure the group continues to hold the Insight Bowl, a second game the bowl operates annually, in Tempe’s Sun Devil Stadium.

The contract requires the city to pay the bowl $850,000 this year and next and $900,000 the final year.

At the same time, Tempe in the fiscal year ended June 30 cut its budget by nearly $36.2 million and eliminated 211 1/2 positions.

Employees were forced to take furloughs last fiscal year and will do so again this fiscal year.

The Scottsdale Convention & Visitors Bureau signed an agreement to pay the Fiesta Bowl $8.2 million over 20 years starting with the 2006-07 football season. In exchange for the money, which the bureau receives from city hotel-bed taxes, the Fiesta Bowl requires participating teams to stay in Scottsdale-area hotels and resorts. For the past Fiesta Bowl, for example, the universities of Connecticut and Oklahoma reported spending a combined $1.1 million in local lodging and meals.

The Fiesta Bowl had $22.3 million in net assets in 2009-10, the most recent year for which IRS records are available. That is nearly three times the value of its assets when the BCS began.

– Public tax documents filed by the Orange Bowl report it received nearly $2.5 million in government grants since 2007-08. The largest chunk, $1.2 million, came in 2008-09. However, documents do not identify the sources of the grants, and the bowl declined requests to name them.

“Suffice it to say, we receive support from multiple sources as we affect tourism and economic development throughout the South Florida region,” Orange Bowl spokesman Larry Wahl said.

The Miami-area bowl has more than quadrupled its net reserves to $31.5 million since the BCS began.

The Rose Bowl in Pasadena, Calif., which started in 1902 and is the oldest bowl, does not receive public subsidies. It has net reserves of $19.1 million, slightly more than double the amount since the BCS began and the lowest among BCS bowls.

The bowls say they keep reserves on hand to protect themselves against future revenue downturns.

Calls for change

Dardenne, the Louisiana lieutenant governor, said there was a time when the Sugar Bowl needed state money to help it stage an “event of that magnitude” and draw tourists to New Orleans. But that time likely has passed, and the state can’t afford it, he said.

Locally, Tempe Mayor Hugh Hallman said the Insight Bowl generates value for his city. But he considers the city’s contract with the Fiesta too expensive.

“The amount provided to the bowl is larger than it needs to be,” Hallman said. “I do recognize the community investment for the event is necessary . . . but I hope in the future the amount the city pays will be brought down.”

In Scottsdale, Brent DeRaad, executive vice president of the Convention & Visitors Bureau, said his group’s deal with the Fiesta Bowl benefits both parties. Scottsdale and Paradise Valley reap sales taxes when teams and fans stay in their hotels and spend money in the cities. The bowl is able to book large blocks of rooms well in advance of its game, before teams have been notified of their selection.

Fiesta Bowl spokesman Andy Bagnato called the bowl a significant economic player in the Valley. He cited an Arizona State University study that estimated the most recent bowl season, including a national championship game at Glendale’s University of Phoenix Stadium, generated nearly $355 million in economic activity.

The Fiesta Bowl has generated more than $1 billion for the Arizona economy during the past five years, Bagnato said.

“Aside from the amount of money generated for the Arizona economy, the Fiesta Bowl provided an incalculable amount of national exposure for the state, not to mention the millions of dollars the Fiesta Bowl has and will generate for local charitable organizations,” Bagnato said.

In regard to the bowl’s $22.3 million in net assets, Bagnato said the Fiesta Bowl needs to “manage prudent reserves” to cover future obligations, market the Fiesta and Insight bowls and pay for related events.

Ultimate question

Schneider, the philanthropy expert, said it is typical for non-profits to solicit government funds. Usually, however, they provide services that the government otherwise would have to provide, for example a group that gets a public subsidy to operate a homeless shelter or public-health clinic.

“If these non-profits didn’t put on the bowls, do you think the government would do it?” Schneider said.

She also questioned whether bowls should retain their non-profit status, saying the BCS has “grown into a huge commercial enterprise with a lot of people making a lot of money.”

“When do you cross the line of being an amateur event?” Schneider said. “The real question is, should these be non-profits at all? Do these organizations meet the spirit of hosting amateur sporting competitions that were designed as a non-profit purpose?”

The Goldwater Institute, a Phoenix-based government watchdog group, doesn’t think so. The institute has successfully opposed other government subsidies; recently, it stopped Glendale from providing a large payout to a new owner for the Phoenix Coyotes hockey team.

“Like any of these sports subsidies, it’s difficult to imagine any good justification,” said Byron Schlomach, an institute economist. “I know they argue that they bring in all this business. But how do they really know that? Anybody who is familiar with how it’s done knows it’s highly speculative.”

Schlomach said governments should cut taxes if they have money to give away.

“The question simply becomes one of priorities. Is our priority to subsidize a sporting event or to provide core services that government needs to provide?” Schlomach said.